Court File and Parties

Court File No.: CV-10-415139 Date: 2016-09-13 Ontario Superior Court of Justice

Between: RBC Dominion Securities Inc. and Royal Bank of Canada Europe Limited, Plaintiffs – and – Crew Gold Corporation, Defendant

Counsel: Jeremy Devereux and Michael Bookman, for the Plaintiffs Alistair Crawley and Natalia Vandervoort, for the Defendant

Heard: May 31, June 1, 2, 3, 10, 2016

Gans J.

Reasons for Judgment

[1] This short trial - with lots of money at stake - involved a ‘simple’ contract interpretation issue. Unfortunately - and fortunately - because each counsel made first rate presentations on behalf of their respective clients, I have had to struggle with the subject agreement and, contextually, the intention of the parties at the time of its execution.

The Facts

[2] The plaintiffs (collectively referred to as “RBC”) are subsidiaries of the Royal Bank of Canada and part of the RBC Capital Markets group. They operate as an investment bank and provide a wide range of investment and corporate finance products and services to corporations, governments and institutional investors with offices in 15 countries, including London, England.

[3] The defendant (“Crew”) is a gold mining company whose principal asset is the LEFA gold mine located in Guinea, West Africa. Although Crew was incorporated pursuant to the business corporation act of the Yukon, it was listed, at all material times, on the Toronto and Oslo Stock Exchanges (the “TSE” and “Oslo Bors” respectively).

[4] In October 2008, the LEFA mine was not performing particularly well and was not yielding sufficient net revenue to service Crew’s outstanding significant debt obligations. The Board of Crew retained RBC to prepare strategic alternatives based upon the latter’s valuation of the company’s net equity position (the “First Engagement”). The choice at that moment in time, depending upon the results of the intended review, was for Crew either to make another foray into the capital markets or seek creditor protection.

[5] In late November 2008, it was decided to go ahead with a rights offering on the Oslo Bors for the purposes of meeting the then current cash flow needs of the company after RBC concluded that the projected long term value of the LEFA mine was sufficient. Curiously, and notwithstanding the contents of the First Engagement with RBC, Crew used the services of a Norwegian securities firm to quarterback the offering.

[6] At the time, RBC provided Crew with a set of strategic choices that ranged from maintaining the status quo; entering into some form of merger and acquisition transaction (“M&A”) for the sale of the Crew business through a share or asset sale; or restructuring the current debt obligations while global, if not gold, market conditions stabilized. RBC rendered an account for the work performed under the First Engagement, for which it was paid.

[7] In March 2009, RBC made a further presentation to the Crew Board at which it reviewed, again, strategic alternatives for the company in the wake of the recent rights offering and improving market conditions. It recommended, among other things, that Crew consider an M&A transaction which might involve “a sale for cash, shares or a merger of equals” in order to maximize shareholder value. [2] The examples set out in the presentation generally contemplated either an en bloc sale of shares for cash or shares, or the disposition, in whole or in part, of the Crew assets or some form of strategic partnership (collectively referred to as the “RBC Alternatives”).

[8] Simply put, as a recurring theme, any variation on the RBC Alternatives would necessitate Crew’s participation and concurrence and, of course, the continuing involvement of RBC to facilitate whatever structure was fastened upon.

[9] The Crew Board determined, at RBC’s suggestion, that it was essential to engage in a debt restructuring with its debenture holders as a precondition to adopting any of the RBC alternatives. Again, the Board opted to use the same Norwegian-based investment dealer as in the previous rights offering, which decision was met with some measure of disappointment by RBC. [3]

[10] The negotiations with the debenture holders dragged on through the Spring until mid-August 2009, when it appeared that a deal was close at hand. The Board instructed RBC to be at the ready to go to market with the proposed alternatives so that some form of sale process could take place as soon as the restructuring had been completed. In anticipation of RBC’s continuing work on the aforesaid M&A proposals, it forwarded Crew an engagement letter.

[11] Although the anticipated deal with the debenture holders went off the rails in early September, RBC still proceeded apace with its analysis and the preparatory work for some form of Crew sale process leading to the rollout of an RBC Alternative. It delivered a further and updated presentation to the Crew Board in early October 2009, in which it outlined, among other things, its strategies for implementing one of the RBC Alternatives. It also addressed an array of mining concerns in which it identified and ‘handicapped’ the likely participants in any alternative under consideration.

[12] Drafts of the principal engagement agreement were exchanged throughout October between RBC and the then Chairman of Crew, Cameron Belsher. Belsher was a senior corporate securities lawyer practicing with McCarthy Tétrault in Vancouver. For what it might ultimately be worth, Belsher retained the services of lawyers in his firm to review the various draft agreements that resulted in a form of letter agreement with RBC, which although executed in mid-December was made as of the 20th of October (“Agreement”). Parenthetically, Belsher testified that because RBC’s work had proceeded in earnest in October, it was only reasonable that they receive a monthly fee (the “Work Fee”) from the time that the RBC Alternatives were formulated and then pursued.

[13] In the meantime, a restructuring agreement was concluded with the debenture holders and closed in early December 2009. Under the terms of this deal, and in consideration for cancelling the outstanding debt, the debenture holders were issued in excess of two billion new shares, representing 95% of Crew’s then issued and outstanding equity. The shares were freely tradeable on the Oslo Bors although subject to a hold and restrictions for a period of four months on the TSE. [4]

[14] As a further consequence of the restructuring, GLG Partners (“GLG”), a London-based hedge fund and former debenture holder which then held approximately 31.6% of the Crew shares, appointed three new directors to the Crew Board. The newly constituted Board, and GLG, endorsed the RBC Alternatives for the implementation of an RBC-orchestrated and managed auction to sell either the assets or shares of Crew in an effort to maximize the return to shareholders.

[15] RBC made another presentation to the Crew Board on December 15, 2009. Now that the restructuring had finished, market conditions had improved, and the LEFA mine production was on an up-tick, RBC believed the time was right to engage in “a broad solicitation” of potential bidders under RBC’s stewardship. RBC was of the view that although the number of “potential interested parties” was reasonably broad, the number of all cash purchasers was limited and the most likely candidate would be a company that would purchase Crew through some form of share M&A transaction. [5]

[16] As an adjunct to its presentation, RBC prepared a detailed timetable for the sale process. The process contemplated would commence with the procurement of initial formal Board approval and end with the ultimate closing of a sale, in whatever form it was to take. The process was also anticipated to include an RBC prepared Confidential Information Memorandum (“CIM”), the solicitation of expressions of interest, a due diligence process undertaken by potential acquirers which would require the execution of a CIM, the receipt of binding bids, the obtainment of regulatory approval, and the preparation and solicitation of shareholders’ approval documentation as a precursor to the actual closing. It was, at its simplest, a 15-stage process that was to span roughly a seven-month period. [6]

[17] Throughout January 2010, GLG received several unsolicited expressions of interest from significant players in the gold game, some of whom were but ‘tire-kickers,’ while others were more than prepared to consider the GLG interest more seriously. Both the Crew Board and RBC were aware of the fact that there was an interest in the GLG control block.

[18] In fact, RBC directed its attention to the potential by addressing this issue in its presentation to the Board on January 22, 2010. RBC observed that “[i]f a control block were sold to a third party that is either disruptive or not interested in selling this can delay or even destroy a process”. [7] RBC further advised the Board that it would be best to “co-opt” the control block by allowing the sale process to run its course in a controlled manner, which would improve the chances of maximizing value to the shareholders as opposed to a one-off sale in the market. Further, RBC suggested that as a fallback measure, the Board should consider facilitating a sale of the key blocks to a buyer who would participate and cooperate in the RBC Alternatives.

[19] In any event, at that meeting, the Board received the RBC update and presentation and approved by resolution “the implementation of the RBC plan involving the marketing the sale or partial sale of the Company.” [8] It was the stated intention to roll-out the RBC marketing efforts at a major international mining conference in South Africa a few weeks later in early February 2010.

[20] At the end of January, at GLG’s request, RBC provided it with a list of potential bidders for the purchase of the latter’s control block. In fact, RBC and GLG prepared a scripted sales pitch to facilitate the sale of this block to a ‘friendly’ purchaser.

[21] But RBC and Crew were more than aware of the fact that GLG could sell its interest to a third party without their involvement. They both thought, however, that forcing any prospective purchaser into signing a CIM with a standstill provision would safeguard the RBC Alternatives.

[22] In other words, neither RBC nor Crew thought that any serious purchaser would conclude an agreement without doing some form of due diligence on Crew and its major assets, which would necessitate the execution of a CIM and standstill agreement. [9]

[23] Events, however, overtook the process very quickly thereafter. GLG was in serious discussions with a Vancouver-based investment bank, Endeavour Financial Corporation (“Endeavour”), that served the mining and minerals industry. It apparently was hot to trot to buy the GLG control block, the latter of which was similarly most anxious to sell its position. In fact, the Chairman of Endeavour made it clear to Belsher that it was prepared to buy the block without availing itself of any RBC-Crew controlled due diligence process, and without the execution of a CIM, as it felt comfortable relying on the public filings. Endeavour proceeded to buy the GLG position and that of another institutional investor through one of its subsidiaries on the Oslo Bors, rounding out its holdings to just under 38%.

[24] Ironically, Endeavour was not part of the RBC proposed list of potential purchasers for the GLG shares. Furthermore, RBC played no part in brokering this deal although it somehow insinuated itself into the mix and was paid a commission for executing the trade (the “Endeavour Purchase”).

[25] I was told that at the next meeting of the Crew Board, held on January 27, the RBC Alternatives were put on hold pending discussions with the Endeavour representatives, who now occupied the GLG seats on the Board. Members of the RBC team were in attendance at the meeting.

[26] For reasons that escape me, and upon which I heard scant evidence, Endeavour and Crew entered into a financial services advisory agreement, effective January 28, which provided Endeavour with a monthly advisory fee, similar to the fee paid to RBC under the Agreement. [10] It also appears that RBC was being shunted to the side, a fact which did not sit well with the RBC group as the flurry of emails found in the Joint Book of Documents (“JBD”) suggests.

The Issue

[27] In early February, RBC told Crew that it was entitled to the success fee provided for in the Agreement as a consequence of the Endeavour Purchase. As will be seen later in this saga, RBC took the position that it was entitled to further success fees arising out of subsequent third party purchases which took place without any RBC involvement. In order to appreciate the issue which arises in this litigation, I will digress to excerpt various provisions of the Agreement to give some context to the RBC claim.

[28] The Agreement provides for the payment of a success fee (“Success Fee”) if a transaction, as defined, (“Transaction’) was completed during the term of the Agreement. The relevant provisions of the Agreement that speak to the payment of a Success Fee are as follows:

This letter sets out the terms and conditions on which Crew Gold Corporation (the “Company”) has engaged RBC Dominion Securities Inc. and Royal Bank of Canada Europe Limited (collectively, “RBC”), member companies of RBC Capital Markets, as its financial advisor in connection with a potential transaction (the “Transaction”) involving the direct or indirect sale or disposition of the Company. The Transaction may involve (i) a sale of all or a substantial portion of the shares, business or assets of the Company to a third party, (ii) an investment by a third party in the Company that results in a change of control of the Company or (iii) an amalgamation, arrangement or other business transaction involving the Company and a third party to effect such sale or disposition.

1. Services

RBC’s services in connection with a Transaction will include providing financial analysis and advice on structuring, planning and negotiating a Transaction and, if requested by the Company, the furnishing of one or more opinions (each, a “Fairness Opinion”) as to the fairness, from a financial point of view, of the consideration to be received by the Company or its securityholders. In consultation with the Company, RBC will assist the Company in preparing a confidential information memorandum, manage the sale process, including contacting prospective purchasers, evaluating offers, and assist in the completion of a Transaction….

4. Fees

For its services hereunder, the Company will pay to RBC the following fees:

(a) Work Fee: a Work Fee of US$25,000 per month, payable monthly in advance commencing on the date of this agreement for each month that RBC is actively involved is [sic] assisting in the execution of the Transaction;

(b) Announcement Fee / Opinion Fee: an Announcement Fee / Opinion Fee of US$750,000, payable upon the earlier of: i) public announcement of the Transaction or ii) delivery of the Fairness Opinion (regardless of its conclusions) to the Company, or if the Company determines not to request the Fairness Opinion in writing, upon the provision of RBC’s final assessment as to the fairness, from a financial point of view, of the consideration to be received by the Company or its securityholders;

(c) Additional Opinion Fee: an Additional Opinion Fee of US$125,000, payable upon the delivery of each additional Fairness Opinion after the initial Fairness Opinion (regardless of its conclusions) to the Company, or if the Company determines not to request the Fairness Opinion in writing, upon the provision of RBC’s final assessment as to the fairness, from a financial point of view, of the consideration to be received by the Company or its securityholders;

(d) Success Fee: Upon the closing of the Transaction, the Company shall pay RBC a Success Fee based on the greater of: (i) US$2,000,000 and (ii) the following:

(i) 0.95% of the Transaction Proceeds up to US$325 million; plus

(ii) 1.75% of the Transaction Proceeds in excess of US$325 million.

100% of the Work Fee, the Announcement Fee / Opinion Fee and the Additional Opinion Fee will be credited against any Success Fee.

“Transaction Proceeds” for purposes of calculating the Success Fee shall include all amounts received by the Company or any affiliate or shareholder of the Company either from the purchaser or by way of special distributions or dividends in connection with the Transaction, including cash, securities, property, delayed payments from earn-outs or the exercise of options or rights and all consolidated debt or other obligations of the Company assumed, forgiven or retired. For purposes of payment of the Success Fee with respect to any portion of the Transaction Proceeds that are not received at the closing of the Transaction, RBC shall estimate at closing such proceeds receivable, and the Success Fee with respect to such proceeds shall be payable at closing based on such estimate. Any non-cash consideration shall be assessed by RBC at its fair market value as of the closing date of the Transaction. If all or a portion of the non-cash consideration is in the form of listed securities, the fair market value of such securities shall be assessed at the volume weighted average trading price of such securities on their principal trading exchange for the five consecutive trading days prior to the closing date of the Transaction.

RBC shall be entitled to the Success Fee above if a Transaction is completed involving any party, whether or not solicited by RBC, pursuant to an agreement to effect or otherwise complete a Transaction entered into during the term of its engagement or for a period of twelve months after termination of its engagement.

7. Term of Engagement

RBC will act for the Company as provided in this agreement until the earliest of the closing of the Transaction, the termination of its engagement by either the Company or RBC upon written notice to the other and 12 months from the date of this agreement, provided that the Company’s obligations to indemnify, to pay any amounts due to RBC pursuant to this agreement including fees, expenses and Tax to appoint RBC pursuant to paragraphs 4 and 5 and to maintain the confidentiality of RBC’s advice and opinions shall survive the completion of RBC’s engagement hereunder, any withdrawal or termination of the Transaction or the expiry or other termination of this agreement. In addition, representations and warranties provided by the Company in connection with this agreement shall remain in full force and effect, regardless of any investigation made by RBC or on its behalf.

13. Other Matters

This agreement incorporates the entire agreement between the parties with respect to the subject matter of this agreement, and may not be amended or modified except in writing. This agreement will enure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the parties hereby irrevocable attorn to the jurisdiction of the courts of the Province of Ontario.…

The Facts—Continued

[29] Within days of the Endeavour Purchase, another company, OAO Severstal (“Severstal”), a Russian-based mining company, began to increase its holdings in Crew significantly.

[30] The race was then on between Endeavour and Severstal for the ultimate control and ownership of Crew. By the beginning of April 2010, each had increased its absolute positions, with Severstal owning almost 27% compared with Endeavour’s roughly 43%.

[31] In the meantime, RBC watched all this activity from the sidelines and offered to assist the Crew Board in what appeared likely to turn into a fight between suitors. Not only was the RBC offer of assistance not accepted, but Crew asked RBC to voluntarily terminate the Agreement and enter into a new agreement which was intended to limit the ‘tail’ period to April 2011 while asking for assistance in respect of the brewing take-over battle.

[32] The duke-out between Severstal and Endeavour for control of Crew continued into the Spring, now before the British Columbia Securities Commission. Again, for reasons which were not canvassed in evidence, Crew opted to engage the services of Genuity Capital Markets to assist it in the take-over matters. The Crew Board was not prepared to avail itself of RBC’s expertise during this dust-up, although such assistance was offered almost continuously throughout this period.

[33] Crew formally terminated the Agreement on April 29, 2010, immediately after which RBC sent it an invoice for the Work Fee, set out above, covering a six-month period ending January 2010. [11] For what it might be worth, RBC did not, contemporaneously, send Crew an invoice for its claim for any form of Success Fee arising from the acquisition of the Crew shares in the open market by either Severstal or Endeavour to that moment in time.

[34] The battle between Severstal and Endeavour came to an end at the beginning of June. In the month subsequent, Severstal increased its shareholdings to just over 50%, with Endeavour staying at around the 43% level, bringing their collective holdings to just over 93%. Endeavour then sold its remaining interest in Crew, which deal closed in mid-September.

[35] RBC sent the first in a series of Success Fee invoices to Crew in late August. While somewhat difficult to follow, I was told that this invoice charged a fee calculated on amounts paid by Severstal and Endeavour for the shares each acquired in the open market or by agreement with institutional vendors during calendar year 2010. The aggregate fee purportedly charged was in excess of $5.7 million. Needless to say, Crew declined to pay the invoice.

[36] The invoice was subsequently amended after the closing of the purchase of the Endeavour shares by Severstal and was now reflective of the additional 43% Endeavour interest in Crew. Again without understanding the arithmetic, the amount now claimed exceeded $7.2 million. Again, Crew did not pay the invoice, which has now resulted in RBC’s present claim.

[37] Severstal acquired the remaining Crew shares in January 2012 through a plan of arrangement. Putting the matter at its simplest, with the exception of the acquisition of the last remaining shares, each of the trades leading up to the take-over of Crew by Severstal, including those obtained along the route by Endeavour, was through an open market transaction. I was told that none of these ‘transactions’ triggered either the Canadian or the Norwegian take-over rules and were all concluded on the Oslo Bors.

Position of the Parties

RBC Position

[38] As stated above, it is RBC’s position that it is entitled to a Success Fee on all third party purchases of the Crew shares from and after the first Endeavour acquisition of the GLG shares to and including the plan of arrangement undertaken by Severstal. Simply put, it is RBC’s argument that the language of the Agreement, upon which its claim for a Success Fee is predicated, is so broad and general as to permit the claim even though RBC was not instrumental in or involved with any of the aforesaid purchases.

[39] It argues that the definition of Transaction not only encompasses the sale or disposition of the entirety of the shares or assets of Crew, but also includes the acquisition of but a portion of the assets or shares of Crew so long as such amounts to a “substantial portion” of the shares, business or assets of Crew. Under the definition of Transaction, it matters not that the acquisition was concluded through an investment by a third party - without RBC involvement - so long as it resulted in a change of control. Finally, Transaction, it argues, also includes an amalgamation, arrangement or “other business transaction” involving Crew and a third party to give effect to “such sale or disposition”—which I take to mean includes a sale or disposition which results in a change of control.

[40] RBC contends that the activities of Severstal between February and December 2010 in purchasing the entirety of the shares of Crew, and thereafter taking the company private amounted to the “sale of all…of the shares …of the Company to a third party” and thus comports with the literal definition of Transaction.

[41] In the alternative, RBC argues that the separate purchases by each of Endeavour and Severstal of 37.88% and more than 50%, respectively, each amounted to the sale of a “substantial portion” of the shares…of the Company to a third party,” which gives rise to separate claims for a Success Fee. Finally, because the tag-end shares were purchased by Severstal pursuant to a Plan of Arrangement, such complies with the last definitional aspect of the term.

[42] RBC further asserts that it is of no moment that Crew was not a participant, or involved in, the Transaction concluded by way of a private sale in the open market. It relies on what it suggests is the expanded definition of Transaction contained in the definition of “Transaction Proceeds,” set out above, which includes “all amounts received by the Company or any affiliate or shareholder of the Company either from the purchaser or by way of special distributions or dividends in connection with the Transaction …” (emphasis added).

[43] It further argues that there is nothing in the Agreement that limits the payment of the Success Fee in any respect, nor mandates RBC to participate in its actualization. Unlike the other fees payable to RBC, namely the Work Fee, the Announcement Fee and the Opinion Fee, the payment of the Success Fee is only dependent on the closing of the Transaction, which it argues occurred at several points along the acquisition continuum.

[44] Finally, RBC has no obligation to provide services to Crew in order to be entitled to the Success Fee, which it argues is clear from the “tail provision.” Under that aspect of the Agreement, RBC is entitled to this fee so long as a Transaction is concluded within 12 months of the termination of the Agreement, regardless of its contribution to the end result.

Position of Crew

[45] Crew’s position at its simplest is that for a Transaction to have taken place, the Company had to be involved in some manner and fashion. Transactions undertaken exclusively between third parties did not and were never intended to meet the definition or the expanded definition found in the Agreement.

[46] Furthermore, the contemplated Success Fee was only payable as a consequence of the provision of financial advisory services, which were connected to, either temporally or actually, with a transaction which resulted in an acquisition of a substantial control position or all of the assets or shares of Crew. To that extent, the payment of a fee upon “the closing” of the Transaction, must be a transaction arising from the work effort of RBC. Furthermore, it argues that it was always anticipated as a backdrop to the Agreement that the services provided by RBC were designed in some fashion to maximize shareholder value, which meant the value to all shareholders.

[47] Crew further argued that any of the enumerated categories expressed in the preamble to the Agreement contemplated the Company’s involvement in some fashion, if only to provide a “control” purchaser with sufficient information during the due diligence process undertaken as a precursor to a “closing.”

[48] As a corollary, it was always anticipated that any suitor would be required to execute a CIM, and a standstill agreement during the currency of any process undertaken by RBC on behalf of Crew or its shareholders. Hence, none of the instant third party transactions were within the contemplation of the parties at the time of the execution of the Agreement or at any time thereafter, even to the point that GLG was poised to sell its interest.

[49] Put otherwise, the description of services contained in any of the RBC proposals tabled before and after the execution of the Agreement underscored the notion that RBC would be controlling any process aimed at maximizing shareholder value and would, therefore, be entitled to ‘share’ in the upside or the ‘success’ of the venture. Put otherwise, the Success Fee was payable as a function of the services performed. It was not to be made as a matter of happenstance.

[50] In this respect, Crew argued that there would be no commercial reason for it to promise to pay RBC a success fee triggered by any transaction concluded between a third party and any of its shareholders who were disposing of a control block. Such an agreement—or interpretation of the Agreement—made no commercial sense.

Analysis

The Law

[51] There is little to separate the parties in respect of the interpretative principles applicable to commercial contracts. They, generally, cite the same cases and the leading text, in which the principles have been distilled within the last decade. Rather than reinventing the wheel, I have determined to borrow liberally from the most recent decision of Newbould J. in Nortel Networks Corp. (Re), in which he excerpted from several cases referenced below. [12]

[52] The principles that I find apply to the task with which I am faced can be expressed as follows: [13]

(1) When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said.

(2) The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective.

(3) In interpreting the contract, the court may have regard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties.

(4) The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity.

(5) If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity.

(6) While the factual matrix can be used to clarify the intention of the parties, it cannot be used to contradict that intention or create an ambiguity where one did not previously exist.

[53] While perhaps a bit of overkill, I end the articulation of the overarching principles by excerpting the oft-repeated paras. 57 and 58 from the decision of Rothstein J. in Sattva Capital Corp. v. Creston Moly Corp., which is basically a reaffirmation of the distillation set-out above:

57. While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).

58. The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

The Agreement

[54] I am not persuaded, taking the Agreement as a whole, that there is any ambiguity in the language used in respect of the terms Transaction or Success Fee. I, therefore, need not engage in the form of analysis and wrestle with the cases to which Newbould J. made reference at footnote 10 in Nortel.

[55] In addition, although pled, Crew has abandoned any notion that the Agreement is subject to the application of the contra proferentum doctrine, giving rise to an interpretation in its favour. While the first drafts of the Agreement were penned by RBC, they were undoubtedly tinkered with by Belsher, a senior commercial lawyer, and I am told, passed on by his partners at McCarthy Tétrault. It would, therefore, hardly lie in Crew’s mouth to say that some ‘ambiguous’ term should be construed against the author, namely RBC. That said, I am of the opinion that the Agreement was reviewed, on Crew’s part, by experienced securities-commercial lawyers, and this fact forms part of the factual matrix considered below.

[56] In my opinion, interpreting the term “Transaction” by simply having regard to the preamble set out above or as, arguably, amplified upon by the extended definition subsumed in the words “Transaction Proceeds” is too limiting an approach to understanding the intention of the parties at the time the Agreement was entered into. Put otherwise, regard, as the cases say, must be had to the agreement as a whole.

[57] First, I am of the view that the Agreement was intended to speak to the rights and obligations of the parties in engaging RBC as the “financial advisor in connection with a potential transaction … involving the direct or indirect sale or disposition of the Company” (emphasis added). These words imply, and I believe were intended to describe the ‘services’ that RBC would undertake during the currency of its engagement, which were to include the provision of, first, a detailed financial analysis and, latterly, advice on the structuring, planning and negotiation of a “Transaction” generated from one of the RBC Alternatives.

[58] RBC was also to provide additional services to Crew, all of which spoke to and were directed at its involvement in the Transaction as it was being entertained by Crew. This range of services covered the entire sales process - whatever form that took - from the initial contacts with prospective purchasers, to the receipt and evaluation of offers, to the preparation of a CIM, and to a determination of a ‘fairness’ review of any offer, from a corporate-securities point of view, if the latter service was specifically requested. Finally, the services anticipated RBC involvement in the process up to the moment of its completion. For all these services, RBC was to receive a variety of fees, as described in section four set out above.

[59] Put simply, RBC was to be the composer, arranger and orchestrator - if not the orchestra leader - of the Transaction, in all its facets, for which it was to be paid a series of fees for services rendered.

[60] Conversely, I do not believe RBC was intended, simply on the wording of the Agreement, to receive a Success Fee unless there was some causal link between its activities and the transaction that was completed, even though RBC was not required to introduce the successful purchaser to the transaction and even though RBC’s involvement was not required to be a material cause. [14]

[61] I am not persuaded that the above interpretation is altered by the wording of “Transaction Proceeds,” as was urged upon me by its counsel. This section, contrary to the suggestion of counsel, does not expand the definition of Transaction, but describes what amounts were to be included for Success Fee calculation purposes, only.

[62] Alternatively, while the proceeds include amounts which might be received by one of Crew’s shareholders directly, all such amounts relate back to the payments made on the completion of the Transaction - and are not intended to cover, simply, any payments received by a shareholder, for example, from an open market transaction involving the sale of a substantial portion of the shares of Crew.

[63] Although my attention was not directed to section five of the Agreement during the trial, while reviewing the document in its entirety for judgment purposes, I was more than modestly intrigued by this section and its relationship to the plaintiff’s argument. While section four covered fees payable to RBC as a result of its defined work and services or in connection with a Transaction, it excluded and placed into an “à la carte” category certain other services for which additional fees were to be subsequently negotiated.

[64] Included in this category was the notion that Crew and RBC would negotiate an additional fee in the event that there was “an investment by a third party in the Company that does not result in a change of control of the Company.” [15]

[65] As I read this section, I believe it is safe to conclude that the purchases by Severstal or Endeavour of shares in Crew in the first six months of 2010, even if amounting to a “substantial portion” of the outstanding shares of the Company, did not amount to control. Hence, even if I am wrong in my conclusion in respect of the interpretation of the Agreement above, I am not persuaded that RBC, as a fallback, would be entitled to a Success Fee on the Severstal and Endeavour purchases ramping up to an actual change of control. In my view, the specific reference to this additional negotiated fee diminishes the force of RBC’s argument that it was entitled to a fee on any type of third party purchase.

The Factual Matrix

[66] As indicated above, when RBC was first retained in 2008, things looked bleak for Crew. Not only was it cash strapped, but it was debt laden. There was uncertainty as to the upside for its main asset in a troubled political and gold market environment.

[67] The entire thrust of RBC’s strategy after the debt restructuring, as set out in its myriad of Board presentations, was to maximize shareholder value by the creation and roll-out of an RBC Alternative, namely a process for the sale of the assets or control shares of Crew. This process was not only first discussed in the Spring of 2009, but was revisited several times thereafter to the moment of the execution of the Agreement in December 2009. Each of the RBC presentations in October and December was similarly themed with emphasis on some form of an en bloc sale of shares or assets through an RBC orchestrated process. [16] None spoke to the possibility of a third party renegade purchase.

[68] It was not on anyone’s radar that any one of the RBC Alternatives would include a purchase of control of Crew through the acquisition of sufficient numbers of shares on the Oslo Bors, even though the shares exchanged with the debenture holders were freely tradable on that exchange.

[69] Furthermore, as the documents and the Agreed Statement of Facts indicate, it was similarly not on anyone’s radar that any purchaser of even a significant interest in Crew would conclude such an acquisition without conducting a due diligence inquiry, which by definition would include the execution of a CIM and some form of standstill agreement. This conclusion is underscored by the surprise evidenced by the Board and RBC team arising from the fact that Endeavour was prepared to throw caution to the wind and close its GLG purchase without conducting a formal due diligence process. [17]

[70] Finally, while not part of the classical factual matrix, the conduct of the parties subsequent to the Endeavour acquisition of the GLG shares is consonant with my conclusion on the intention of the parties at the time the Agreement was executed. When RBC learned of GLG’s intention to sell its interest in Crew, there was a flurry of activity on its part to ensure that either GLG sold to a friendly and compliant buyer or that a stand-still agreement would be concluded with dispatch so that an RBC Alternative would not be sidetracked, if not scuppered entirely.

[71] In my opinion, two things are fair to conclude from these events and the welter of email correspondence that was generated internally and exchanged with members of the Crew Board. First, RBC’s end game was to receive a Success Fee since the other payments to which it was entitled not only paled in comparison and also did not form the essence of the deal. Secondly, there is scant evidence to suggest that members of the RBC team were then of the view, at the end of January, that it was entitled to the fee, regardless.

[72] Put otherwise, as matters began to unfold and it became apparent that Endeavour was a real player and one which would not be entering into any form of standstill agreement to permit the RBC process to continue, the prospects of collecting on an “earned” Success Fee were fast disappearing.

[73] While I daresay that the following is inferred from the facts as they developed subsequently, I think it is also fair to conclude that RBC’s intention to pursue the instant action on its now interpretation of the Agreement is driven by the fact that it was essentially shut out of any further fees from Crew when the latter entered into another financial services agreement with Canaccord Genuity Inc. for the provision of services which RBC had anticipated offering in light of the anticipated battle between Severstal and Endeavour.

Conclusion

[74] In the final analysis, I am not persuaded that RBC’s interpretation of the Agreement prevails. The action will, accordingly be dismissed. If the parties cannot come to an agreement on costs, I may be contacted within two weeks from the release of these reasons for the format for the submission of Bills of Costs.

GANS J. Released: September 13, 2016

Footnotes

[1] Counsel provided me with a detailed and expansive Agreed Statement of Facts before the commencement of trial. This statement, from which I have borrowed liberally throughout the course of the judgment, provided a clear summary of the 600 plus documents which were furnished to me electronically. I hasten to observe for whomever might take the time and trouble to read the footnotes to this judgment that I am indebted to Counsel for providing me with electronic copies of all the relevant material filed in this case, including facta, case law and hyperlinked documents, all of which were put together in very short order.

[2] JBD 86 - RBC Presentation - March 12, 2009, at p. 20. See also pp. 18-27.

[3] JBD 113 - Email from Patrick Meier to Jens Ultveit-Moe - April 21, 2009.

[4] JBD 264 - Crew Press Release - December 4, 2009, at p. 14.

[5] JBD 280 - RBC Presentation - December 15, 2009, at p.14.

[6] JBD 280 - RBC Presentation - December 15, 2009, at p.16.

[7] JBD 354 - RBC Presentation - January 22, 2010, at p.37.

[8] JBD 362 - Minutes of Crew Directors’ Meeting - January 22, 2010.

[9] JBD 414 - Minutes of Crew Directors’ Meeting - January 26, 2010.

[10] JBD 447- Endeavour Engagement Letter - January 28, 2010. This agreement anticipated paying Endeavour certain additional fees, including a defence fee in the event there was some form of hostile takeover attempt in future - a most prescient provision.

[11] JBD 558 - Invoice and letter from RBC to Crew - April 30, 2010.

[12] Nortel Networks Corp. (Re), 2015 ONSC 2987, 27 C.B.R. (6th) 175, at paras. 52-57, excerpts from the following cases: Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 74 B.L.R. (4th) 161; Kentucky Fried Chicken Canada v. Scott’s Food Services Inc. (1998), 41 B.L.R. (2d) 42 (Ont. C.A.); Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; and Primo Poloniato Grandchildren’s Trust (Trustee of) v. Browne, 2012 ONCA 862, 115 O.R. (3d) 287 (Ont. C.A.).

[13] The principles expressed below are an amalgam of the excerpted portions in Nortel, at paras. 52, 53, and 57, from the decisions of Winkler C.J.O. in Salah, Goudge J.A. in Kentucky Fried and Feldman J.A. in Primo Poloniato.

[14] Because I have concluded that there must be a causal link between the activities of RBC and the completion of a transaction, I do not need to engage in a discussion of the difference or application of the somewhat anachronistic concepts of causa causans and causa sine qua non.

[15] JBD 267 - Engagement Letter - October 20, 2009.

[16] JBD 215 - RBC Presentation - October 6, 2009; JBD 289 - RBC Presentation - December 15, 2009.

[17] JBD 414 - Minutes of Crew Directors’ Meeting - January 26, 2010; Agreed Statement of Facts, at para. 56.